Q1. Has first preference to assets in case a business fails?
a. Stockholders
b. Long-term creditors
c. Customers
d. Employees
Q2. Including all relevant data a reader needs to understand the financial condition and performance of a business refers to which concept?
a. Adequate disclosure concept
b. Going concern concept
c. Objectivity concept
d. Business entity concept
Q3. The basic type of stock issued to owners is called common stock.
a. true
b. false
Q4. Which of the items below is NOT a business organization form?
a. Venture entrepreneurship
b. Proprietorship
c. Partnership
d. Corporation
Q5. Which principle determines the amount initially entered into the records for purchases?
a. Cost principle
b. Going concern concept
c. Business entity concept
d. Objectivity concept
Q6. Creditors have preference to assets behind stockholders if a business fails.
a. true
b. false
Q7. More that 70% of businesses are organized as what type of business?
a. Not-for-profit
b. Corporation
c. Partnership
d. Sole proprietorship
Q8. Merchandising businesses must be corporations.
a. true
b. false
Q9. A corporation is a business that is legally separate and distinct from its owners.
a. true
b. false
Q10. If there was no beginning retained earnings, net income of $20,000, and ending retained earnings of $6,000, how much were dividends?
a. $10,000
b. $4,000
c. $6,000
d. $14,000
Q11. Shares of ownership are evidenced by issuing
a. bonds payable.
b. commercial paper.
c. shares of stock.
d. notes payable.
Q12. Accounting is thought to be the 'language of business' because business information is communicated to stakeholders.
a. true
b. false
Q13. A business stakeholder has an interest in the economic performance of a business.
a. true
b. false
Q14. When a business borrows money, it incurs a(n)
a. tax.
b. liability.
c. receivable.
d. additional equity.
Q15. Assets are acquired through investing activities when resources are purchased.
a. true
b. false
Q16. Over 90% of the total dollars of business receipts are received by proprietorships.
a. true
b. false
Q17. The objective of most businesses is to maximize profits.
a. true
b. false
Q18. A summary of revenue and expenses for a specific period of time is a(n)
a. income statement.
b. balance sheet.
c. statement of cash flows.
d. retained earnings statement.
Q19. Which statement is normally prepared first?
a. Income statement
b. Balance sheet
c. Statement of cash flows
d. Retained earnings statement
Q20. A note payable requires payment of the amount borrowed plus
a. interest.
b. cash.
c. accounts payable.
d. investments.
Q21. Under a premium-price emphasis, a business designs products that possess _____ for which customers are willing to pay a premium price.
a. unique attributes
b. high costs
c. competitive efficiencies
d. longer warranties
Q22. A summary of changes in the earnings retained in the corporation for a specific period of time is a(n)
a. income statement.
b. balance sheet.
c. statement of cash flows.
d. retained earnings statement.
Q23. Rights to payments from customers are
a. liabilities.
b. prepaid expenses.
c. accounts receivable.
d. accounts payable.
Q24. Stockholders in a corporation are internal stakeholders.
a. true
b. false
Q25. Browning, Inc. had revenues of $234,000, expenses of $175,000, and dividends of $30,000 during 2010. Which of the following statements is correct?
a. Net income for 2010 totaled $29,000.
b. Net income for 2010 totaled $59,000.
c. Total retained earnings increased by $59,000 during 2010.
d. Total retained earnings decreased by $30,000 during 2010.
Q26. Which of the following group of accounts are all assets?
a. Cash, Accounts Payable, Buildings
b. Accounts Receivable, Revenue, Cash
c. Prepaid Expenses, Buildings, Patents
d. Unearned Revenues, Prepaid Expenses, Cash
Q27. The effect of every transaction is an increase or a decrease in one or more of the accounting equation elements.
a. true
b. false
Q28. Anthony, Inc. buys land for $50,000 cash. The net affect on assets is
a. $50,000 increase.
b. $0.
c. $50,000 decrease.
d. $25,000 increase.
Q29. For EFG Co., the transaction 'Receipt of interest income' would
a. increase total assets.
b. decrease total assets.
c. have no effect on total assets.
d. decrease total liabilities.
Q30. The payment of utilities expense in cash would affect the operating activities in the statement of cash flows and the income statement but NOT the balance sheet.
a. true
b. false
Q31. Retained earnings will be increased by the amount in the dividend account.
a. true
b. false
Q32. The basic financial statements do NOT include the
a. income statement.
b. tax return.
c. balance sheet.
d. statement of cash flows.
Q33. Any given transaction must affect at least two different parts of the accounting equation.
a. true
b. false
Q34. The accounting equation can be expressed: Assets - Liabilities = Revenues.
a. true
b. false
Q35. The statement of cash flows is integrated with the balance sheet because
a. the cash at the beginning of the period plus or minus the cash flows from operating, investing, and financing activities equals the end of period cash reported on the balance sheet.
b. the cash at the beginning of the period plus or minus the net income equals the end of period cash reported on the balance sheet.
c. the cash at the beginning of the period plus or minus assets and liabilities equals the end of period cash reported on the balance sheet.
d. the cash at the beginning of the period plus or minus the cash flows from operating activities equals the end of period cash reported on the balance sheet.
Q36. A to Z Corporation engaged in the following transaction 'Paid a $10,000 cash dividend.' On the Statement of Cash Flows, the transaction would be classified as
a. Cash Flows from Operating Activities.
b. Cash Flows from Investing Activities.
c. Cash Flows from Financing Activities.
d. Noncash transaction.
Q37. A _____ is an economic event that under generally accepted accounting principles affects an element of the financial statements and must be recorded.
a. framework
b. control
c. set of rules
d. transaction
Q38. The basic elements of a financial accounting system include a framework for preparing financial statements.
a. true
b. false
Q39. Equality of the accounting equation means that no errors have occurred.
a. true
b. false
Q40. For EFG Co., the transaction 'Purchase of store equipment with a note payable' would
a. increase total assets.
b. decrease total assets.
c. have no effect on total assets.
d. decrease total liabilities.
Q41. Rush Corporation borrowed $25,000 from the bank. Which of the following accurately shows the effects of the transaction?
a. Increase cash $25,000 and decrease notes payable $25,000
b. Increase cash $25,000 and increase notes payable $25,000
c. Decrease cash $25,000 and decrease notes payable $25,000
d. Decrease cash $25,000 and increase notes payable $25,000
Q42. Expenses can be defined as
a. assets consumed.
b. services used in the process of generating revenues.
c. costs that have been incurred during the normal course of business.
d. all of these.
Q43. The first month of operation showed the net cash from operating activities to be $3,760, the net cash from investing activities to be ($5,415), and the ending cash balance to be $3,425. The net cash from financing activities must be
a. $1,770.
b. $5,080.
c. $5,750.
d. $12,600.
Q44. Johnson, Inc. issued $15,000 in capital stock in exchange for cash. What is the effect of this transaction?
a. Total assets remain unchanged.
b. Cash flow from Financing Activities will increase.
c. Net Income will increase.
d. Total Retained Earnings will increase.
Q45. Dividends are an example of an expense.
a. true
b. false
Q46. Johnson, Inc. receives $5,000 cash for fees earned. What is the effect of this transaction?
a. Total assets remain unchanged.
b. Cash flow from Financing Activities will increase.
c. Net income will increase.
d. Retained earnings will remain unchanged.
Q47. It is possible for a transaction to change the makeup of assets, but to NOT affect assets in total.
a. true
b. false
Q48. Johnson, Inc. purchased land for cash. What effect does this transaction have on the following accounts:
a. Increase in Cash and decrease in Land
b. Decrease in Cash and decrease in Land
c. Increase in Cash and increase in Land
d. Decrease in Cash and increase in Land
Q49. For EFG Co., the transaction 'Receipt of a utility bill' would
a. increase total assets.
b. decrease total assets.
c. have no effect on total assets.
d. decrease total liabilities.
Q50. Fees earned and received in cash will increase operating activity cash flows as well as retained earnings.
a. true
b. false
Q51. Every company must use the cash basis of accounting.
a. true
b. false
Q52. Updating accrual accounting records prior to preparing financial statements is called
a. the closing process.
b. converting to cash basis accounting.
c. the adjustment process.
d. going concern adjustments.
Q53. The balance in the office supplies account on June 1 was $5,200, supplies purchased during June were $2,500, and the supplies on hand at June 30 were $1,500. The amount to be used for the appropriate adjusting entry is
a. $6,700.
b. $2,500.
c. $9,200.
d. $6,200.
Q54. Flyer Co. billed a client for flying lessons given in January. The payment was received in February. Under the accrual basis of accounting, when should Jedi record the revenue?
a. January
b. February
c. Some in January and some in February
d. Jedi should not record any revenue
Q55. The accrual basis of accounting recognizes
a. revenues when cash is received and expenses when cash is paid.
b. revenues when earned and expenses when cash is paid.
c. revenues when cash is received and expenses when incurred.
d. revenues when earned and expenses when incurred.
Q56. When cash is received in payment of an account receivable, which section of the Statement of Cash Flows is affected?
a. Cash Flow from Operating Activities
b. Cash Flow from Investing Activities
c. Cash Flow from Financing Activities
d. There is no effect on the Statement of Cash Flows.
Q57. Accrued expenses are ordinarily reported on the balance sheet as
a. assets.
b. liabilities.
c. fixed assets.
d. prepaid expenses.
Q58. An adjusting entry would adjust an expense account so that the expense is reported when incurred.
a. true
b. false
Q59. Depreciation Expense and Accumulated Depreciation are classified, respectively, as
a. expense and contra asset.
b. asset and contra liability.
c. revenue and asset.
d. contra asset and expense.
Q60. Cash receipts from interest and dividends are classified as
a. investing activities.
b. operating activities.
c. either financing or investing activities.
d. financing activities.
Q61. Fees receivable would appear on the balance sheet as a(n)
a. asset.
b. liability.
c. fixed asset.
d. unearned revenue.
Q62. Under the cash basis of accounting, no adjustments are necessary prior to the preparation of the financial statements.
a. true
b. false
Q63. Which of the following accounts would likely be included in a deferral adjusting entry?
a. Interest Revenue
b. Unearned Revenue
c. Salaries Payable
d. Accounts Receivable
Q64. To arrive at cash flows from operations, it is necessary to convert the income statement from an accrual basis to the cash basis of accounting.
a. true
b. false
Q65. Which of the following should be shown on a statement of cash flows under the financing activity section?
a. The purchase of a long-term investment in the common stock of another company
b. The payment of cash to retire a long-term note
c. The proceeds from the sale of a building
d. The issuance of a long-term note to acquire land
Q66. To determine cash payments for operating expenses for the cash flow statement using the direct method, depreciation expense is added to net income.
a. true
b. false
Q67. The matching concept requires expenses to be recorded in the same period that the related revenue is recorded.
a. true
b. false
Q68. The process that begins with the analysis of transactions and ends with preparing the accounting records for the next accounting period is called the accounting cycle.
a. true
b. false
Q69. Using accrual accounting, revenue is recorded and reported only
a. when cash is received without regard to when the services are rendered.
b. when the services are rendered without regard to when cash is received.
c. when cash is received at the time services are rendered.
d. if cash is received after the services are rendered.
Q70. Rights that are short-term in nature are called intangible assets.
a. true
b. false
Q71. Accrued expenses are expenses that have been incurred and paid.
a. true
b. false
Q72. Under the accrual basis of accounting, net cash flows from operating activities on the statement of cash flows will normally be the same as net income.
a. true
b. false
Q73. It is easy to objectively determine the physical decline in the ability of fixed assets to provide service.
a. true
b. false
Q74. ABN Company sold goods, receiving $20,000 in cash and $25,000 on credit. How much revenue should it record under the accrual basis of accounting?
a. $5,000
b. $25,000
c. $20,000
d. $45,000
Q75. Deferred revenues (unearned revenues) are items initially recorded as liabilities, but expected to become _____ over time.
a. liabilities
b. assets
c. revenues
d. expenses
Q76. On the income statement, sales discounts are normally deducted from sales to yield the cost of merchandise sold.
a. true
b. false
Q77. What is subtracted from sales to arrive at net sales?
a. Sales returns and allowances
b. Sales discounts
c. Both sales discounts and sales returns and allowances
d. Neither sales discounts nor sales returns and allowances
Q78. Investing activities include
a. collecting cash on loans made.
b. obtaining cash from creditors.
c. obtaining capital from owners.
d. repaying money previously borrowed.
Q79. If the buyer is to pay the delivery expense of delivering merchandise, delivery terms are stated as
a. FOB shipping point.
b. FOB destination.
c. FOB n/30.
d. FOB buyer.
Q80. To determine cash payments for operating expenses for the cash flow statement using the direct method, a decrease in prepaid expenses is added to operating expenses other than depreciation.
a. true
b. false
Q81. Merchandise inventory shrinkage will increase Merchandise Inventory.
a. true
b. false
Q82. Merchandise subject to terms 1/10, n/30, FOB shipping point, is sold on account to a customer for $20,000. The seller paid transportation costs of $1,000 and issued a credit memorandum for $5,000 prior to payment. What is the amount of the cash discount allowable?
a. $160
b. $150
c. $140
d. $100
Q83. What is one criticism of the single-step income statement?
a. It is too complex.
b. It has too many subsections.
c. Gross profit and income from operations are not available for analysis.
d. Income taxes are given too much weight.
Q84. The credit terms of a sale are normally indicated on a(n)
a. purchase order.
b. invoice.
c. bill of lading.
d. account receivable.
Q85. Multiple-step income statements show:
a. gross profit but not income from operations.
b. neither gross profit nor income from operations.
c. both gross profit and income from operations.
d. income from operations but not gross profit.
Q86. On the income statement, the merchandise inventory at the beginning of the period is added to sales to yield the cost of merchandise sold during the period.
a. true
b. false
Q87. Net sales is equal to sales plus cost of merchandise sold.
a. true
b. false
Q88. When merchandise is purchased to resell to customers, it is recorded in the account entitled
a. Supplies.
b. Cost of Goods Sold.
c. Merchandise Inventory.
d. Sales.
Q89. There are two alternatives to reporting cash flows from operating activities in the statement of cash flows: (1) the direct method and (2) the indirect method.
a. true
b. false
Q90. Net income or loss may appear on the income statement of both a service business and a merchandising business.
a. true
b. false
Q91. A buyer who acquires merchandise under credit terms of 1/10, n/30 has 10 days after the invoice date to take advantage of the cash discount.
a. true
b. false
Q92. Which of the following should be shown on a statement of cash flows under the financing activity section?
a. The purchase of a long-term investment in the common stock of another company
b. The payment of cash to retire a long-term note
c. The proceeds from the sale of a building
d. The issuance of a long-term note to acquire land
Q93. Discounts taken by the buyer for early payment of an invoice are called purchases discounts by the buyer.
a. true
b. false
Q94. Using a perpetual inventory system, the purchase of $30,000 of merchandise on account would include a(n)
a. increase in Sales.
b. increase in Merchandise Inventory.
c. decrease in Merchandise Inventory.
d. decrease in Sales.
Q95. Based on the following information, what would be recorded as purchases discount if the invoice is paid within the discount period?
1. $5,000 of merchandise inventory was ordered on April 2, 2010.
2. $2,000 of this merchandise was received on April 5, 2010.
3. On April 6, 2010, an invoice dated April 4, 2010, with terms of 2/10, net 30 for $2,150 which included a $150 prepaid freight cost, was received.
4. On April 10, 2010, $500 of the merchandise was returned to the seller.
a. $100
b. $30
c. $43
d. $33
Q96. Sales returns are granted by the seller to customers for damaged or defective merchandise.
a. true
b. false
Q97. Using the indirect method for preparing the statement of cash flows, what is the net cash flow from operating activities if net income is $39,000; depreciation expense is $9,000; and the decrease in accounts payable is $5,000.
a. $48,000
b. $53,000
c. $35,000
d. $43,000
Q98. When the perpetual inventory system is used, the inventory sold is shown on the income statement as
a. cost of merchandise sold.
b. purchases.
c. purchases returns and allowances.
d. net purchases.
Q99. On the income statement, sales returns and allowances and sales discounts are added to gross sales to yield net sales.
a. true
b. false
Q100. A sales invoice included the following information: merchandise price, $5,000; terms 1/10, n/eom. Assuming that a credit for merchandise returned of $600 is granted prior to payment, and that the invoice is paid within the discount period, what is the amount of cash received by the seller?
a. $4,656
b. $4,400
c. $4,356
d. $4,950